Why isn’t there a iPad Pro Bundle?

ipad-pro-primary-100627050-largeAre you tired yet of reading the many reviews on iPad Pro? May be it is time for you stop and take a closer look at its pricing and its two key accessories.

Apple’s iPad Pro goes on sale today for a list price of $799. But wait there is more. You can spend $169 more for a keyboard that turns it into a laptop. And you can spend another $99 to get its Pencil.  These are optional add-ons. There is no Apple bundle that offers iPad plus keyboard or all three at a lower price than the sum of individual products. What if Apple offered one or both these bundles?

  • Bundle 1: iPad, Keyboard and Pencil for $999 (a $69 discount )
  • Bundle 2: iPad with Keyboard for $919 (a $49 discount)

It doesn’t and it won’t. Why is that?

Before we go into this I want to remind you why a product manager should consider product bundling. I wrote this while back on bundling,

pricing a bundle is not a straightforward answer. A marketer needs to know the demand schedule, customer preferences, customer segments, and value add from bundling. The correct price is the one that maximizes profit

Regarding two possible bundles, let us knock out one right away. It is the iPad plus Keyboard bundle. This simply could have been achieved by pricing the keyboard at $129 vs. $169. The keyboard has no standalone purpose and works only with iPad Pro. So a bundle at lower price is exactly same as a lower priced keyboard.

There is no reason for Apple to bundle or drop price because it understands well the customer segment that prefers the keyboard, why they choose the keyboard and what the customers are willing to pay.  Dropping the price may increase volume but at the expense of profit. If we assume 50% gross margin on the keyboard (highly likely number given Apple’s track record),  Apple will have to sell twice as many keyboards $129 to make same profit as $169 keyboards.  That does not fit its pricing philosophy or strategy.

If you see the logic of this simple bundle it is not difficult to see why a full bundle of all keyboard and Pencil doesn’t make sense either. Additionally the segment that prefers Pencil does so for very specific use case and that does not apply to most who prefer a keyboard. So a bundle price will need to so low to appeal to both segments to generate any incremental volume, meaning even lower total profit than selling them unbundled.

In simple terms, no customer demand or economic preconditions exist to create iPad Pro bundles. Apple’s product management team took the simpler and favorable approach of selling the add-ons to maximize profit.

 

Making User Experience Count

Photo courtesy: Flickr user Andy BrightWe accept it as truism. Yes, User Experience or #UX counts and is the most important aspect of a product or service. User experience is not just about the design, user interface or measured only when customers are using the product. It is measured across the entire lifecycle. It is about making things easy and frictionless.

Make it easy for prospects to know about your product. Make it easy to buy. Make it easy to onboard. Make it easy to get to results after first use. Make it easy for continued use. Even make it easy to switch.

All these intuitively make sense. But leading with User Experience, however noble this sounds, is no different from leading with tech specs and product features. What is missing in our push for frictionless user experience is data – Data on these key questions

  1. Who is the customer?
  2. Why are they hiring the product?
  3. What are their alternatives?
  4. How do they make buying decisions?
  5. What aspects of the product do they value and are willing to pay for?
  6. What product factors influence repeat business?

Without data on these we risk focusing on improving wrong aspects of user experience. Wrong because those do not affect customer buying decisions or their value perception. Take for instance a widely read short piece on user experience by Chief Product Officer Neil Hunt of NetFlix.

AAEAAQAAAAAAAAS1AAAAJDQ4YTI4Mzk5LTRlNTUtNDU1Yy04NTg0LWVjZjA3NzYyOWJjZANeil makes a case why the toiletries at hotels are poorly designed and present bad user experience. He describes the profile of user (wears glasses) and context (about to take bath) and puts forth a recommendation.  He goes on to make design recommendations for better user experience. Makes sense.

But have we answered the six questions on customers?  Take for instance the question of how these customers make buying decisions. How many travelers – leisure or business – do you think will make a buying decision based on user experience of shampoo bottles?

Answering this or the list of six questions is not difficult. We have several methods at our disposal like ethnographic research, conjoint analysis or randomized trials (like AB testing) to get customers to reveal their preferences.

Before getting that crucial data why go down the path of optimizing user experience of one small part of the lifecycle? At best you please those who are already your rabid fans and at worse you incur huge opportunity cost of not focusing on the the right things that drive adoption and grow business.

For instance, an observational study may reveal customers assign more value to check-in process and free breakfast over shampoo bottles at the bathroom. You may be delivering better experience with design change but won’t move the needle on what matters.

User experience is indeed key but leading with it is same as leading with technology (feeds and speeds). Start with the customer and answer the key questions before solving the wrong problem.

Where do you start when you build a product?

bb810ea3c1ce83c2b7168e62c21476c1.jpgPeople ask me this question in different contexts – from casual acquaintances who are not into business, those changing careers from engineering to product management, to someone in product marketing wanting to write a series of blog posts for marketing, to those who want to hire me to build and scale their business.  I share with them my simple, testable, repeatable model to build products.

I find there is no single unified coursework in MBA programs to cover this. I find the methods described in books on product management dive too quickly and too deeply into day in the life of a product manager. I find most enterprises and startups get into hustle of doing things first or attending many meetings about it than put some rigor around this most important aspect. I find the blog posts and advice from pundits are based on myths, fables and selective anecdotes.

I want to share with you my model or framework for great product management. I use this method with every new product, pivots or feature additions. I coach the teams I hire on this method to help them become amazing product managers.  Here I present an infographic of this framework I call, CAMP.

Ask me how I can help you, your business and  your team put this into practice to build products.  Remember, it is not a product until you have identified customers whose problems it solves and who are willing to pay for it.

Pm Framework

Follow the yellow brick road to startup success

This is a guest post by Hubert, Palan, a good friend and classmate from Haas School of Business, UC Berkeley. Hubert (twitter: @hpalan) is the founder and CEO of ProductBoard.com, a platform for strategic product design and management headquartered in San Francisco, California. Prior to ProductBoard, Hubert was the Vice President of Product Management at GoodData, where he managed GoodData’s disruptive platform business, built the whole front-end product management team from the ground up and established and embodied modern principles of user experience designs.

An additional note – I see Hubert as the model for taking risks. He decided to launch a startup not because it was the only option available to him but when he was succeeding in his career and had multiple choices at his disposal.

Have you written your guest post yet?


yellow brick road
yellow brick road (Photo credit: hairchaser)

Let me tell you a short story. My wife, Jenna, and I went for a run early one morning in the Oakland hills. We had an idea where we wanted to go, but we didn’t have a map so we didn’t know how to get there. As we ran we asked several dog-walkers for directions along the way. Since it was after a rainy night, and I was running in very thin-soled running shoes, we asked if their recommended path would be muddy or not. As it turns out, different people have conflicting opinions about both the directions and the quality of the road. Eventually after a few wrong turns we found the right path, but of course contrary to what people said, it was pretty muddy.

Why am I telling you this? I recently quit my job at GoodData and started working on my own startup. Our morning run got me thinking about the challenges you have as a founder building a startup, or a new product. You have an idea of where you want to arrive – your dream target audience with a great need, that your perfect solution will satisfy.

You need to create a product roadmap that would navigate your team. Not only do you not have a map, you don’t even know if there are any roads out there. Muddy or otherwise.

So you head out and start asking for advice. You talk to advisors, investors and one potential customer after another trying to discover the roads and choose the best and shortest one. Advisors and investors give you conflicting advice about the best way, because even though they are great runners, they never ran quite the same route. Various potential customers suggest different features they would want, though they are not really sure if they even need them. They are like the dog-walkers, who are not sure about the route either, but since you ask, they make up an answer.

So you run in circles and take many wrong turns. You hope for smooth paths, and they turn out to be muddy. Hopefully though, you end up finding the right way and reaching your goal.

My friend and mentor Arthur J. Collingsworth always said: “Persistence, persistence, persistence.” So no matter if you are running in some hills, building a startup or working on a new product, persevere and keep on running.


Evolution of Unbundled Pricing – From Service Reductions to Enhancements

Five years back, during the dark days of  the Great Recession, we saw the early stages of unbundled pricing. Specifically, airlines seeing considerable drop in passengers and hence revenue per passenger mile, increasing costs and increasing price competition needed a way to stay afloat.   The had excess capacity, exhausted their marketing spend, lost the ability to differentiate on the offering and were left with no real option to increase passenger miles flown.

So they chose the only choice available to them. Keep the ticket price competitive because customers were making decisions based only on price but separate out everything else that used to be included in the price of ticket and charge for it.

Whether unbundling the extras resulted in any cost savings is debatable. There was a case that each piece of checking baggage had a marginal cost of $15. It is however difficult to see how they can so precisely pin down cost one additional bag checked in. The primary effect of unbundling was not cost reduction but revenue generation.

feesCheckin bags? Need a drink? A pillow? Take out your credit card.

Some went even farther, charing for paper ticket, reserving through an operator, or picking seats.  Or more recently charging for printing boarding pass at the gate and carryon bags (Frontier).

Naturally customer backlash ensued. You may not remember it now but we all felt nickel and dimed paying for extras. That as I explained before was the reference price effect. We don’t feel that way anymore because fees have become the new norm and the reference price has moved from $0.

What started out as Nickel and Diming was nothing more than draining the stream to expose the submerged rocks blocking the value flow. There was no clear defensible reason other than convention why all the different extras were included in the price of ticket.  For one thing these added costs but as I said before more importantly they represented value capture opportunities. With all inclusive pricing Airlines could not figure out those opportunities.

Yes there was backlash and late night talk show jabs.  After all jokes are done the fees became a significant source of income (yes almost all of revenue flowed directly to profit to airlines. By the last measure airlines took in $6.1 billion in fees in 2012 and on track to double in 2013. What started out as an irritant to customers and a service restriction has become a significant revenue source.

These days airlines have changed their thinking process with regard to monetization. The default is not what additional services will help increase brand value, differentiation and ticket price but what new products we can introduce that will help add yet another revenue source.

It is all unbundling.

These days airlines see themselves as product managers – not the type you have in mind, the one worries about details, buttons, bevels – the kind that worries about what customers value and how they can deliver a product that captures that value.

“We’re a retailer trying to create a product line,” said Rick Elieson, American’s managing director of digital marketing.

After all a product is nothing but a value delivery vehicle.

Do customers value the flexibility of changing flights without having to pay change fee? American create a product branded Choice Essential—priced at $68  travelers can change reservation without a fee.

If one price is good, two are better. So American also has Choice Plus package, priced at $88 that lets you stand by for a different flight on the same day.

Travel a lot and want to save the hassle of paying for bags each time? United makes it easy for you with a product that lets you pay a flat $399 fee for the whole year.

Want to get better seats? You have economy plus product. You can also get yearly subscription for $499 without shelling out a fee each time.

In essence they have become a retailer or merchant. They are not anymore ripping out roofs in third class train cars (because there is no more roof), they are selling shades and umbrellas to the  customers in the roofless cars. They also are selling value added items to those in second class cars.

“We’ve moved from takeaways to enhancements,” says John F. Thomas of L.E.K. Consulting. “It’s all about personalizing the travel experience.” (Source)

That is what understanding your customers can do for you.

Do you enforce takeaways to limit your customer usage or enhancements to create and capture value?

Don’t be a product person, be a merchant

Founders and product managers alike wear this proudly on their sleeves (or twitter bios)

The Ultimate Product Person – who loves products, building products and sweating the details.

Skim through any of the many valley job postings for product managers – the one mandatory requirement is love for products.

Makes sense? Why would you hire someone who does not say they are a product person to build products? Let us keep things simple and not talk all those products that are insanely great and making friction less something or other. How about coffee? Say your business is running a coffee shop, as founder and CEP, don’t you think you should be a coffee person?

Here is what someone who knows a thing or two about coffee, Howard Schultz founder and CEO of Starbucks, describes himself,

CEO Howard Schultz says he’s never been a “coffee person.” Sitting in his sprawling Seattle office overlooking Puget Sound, he says that what he’s always been is a merchant.

Schultz is right in describing himself as a merchant. The dictionary meaning does not seem to carry the intent of Schultz,

mer·chant  (mûrchnt) n.

1. One whose occupation is the wholesale purchase and retail sale of goods for profit.
2. One who runs a retail business; a shopkeeper.

Literally yes he owns the shops, buys beans on wholesale and sells grande lattes for profit. But a more apt definition for the term should be

mer·chant  (mûrchnt) n.

3. One who figures out what customers value and willing to pay a premium for and finds a way to deliver it to them at lower cost

You can obsess over the product, about its velvety finish, beveled edges, etc., but if you fail to understand how and why those features add value to customers that compels them to pay a premium price for it, being a product person is pointless.

When you are a product person you start with features, think of your product as a bundle of features, speak about features, obsess about features, throw a tantrum when engineering wants to drop a feature because of resource constraints, use words like ‘awesome’, ‘uniquely positioned, ‘award winning, and ‘remarkable’ without explaining what that means and finally price your product as a sum of its parts.

When you are a merchant you start with customers, those you want as your customers over others, find out what they value and deliver it at a price that matches the value perception and at a cost that makes you a handsome profit.

A product person keeps iterating on what is at hand, moving along the same curve and failing to jump to another curve.

A merchant is laser focused on the customer and what job they are hiring the product for. They keep adding many different  curves that are relevant to that customer.

An ultimate product person is not one who has products in their blood. The ultimate product person is really a ‘merchant‘ who understands that a product is simply a value delivery mechanism.